USD/JPY sticks to modest intraday gains around mid-145.00s amid sustained USD buying

• USD/JPY gains some positive traction on Monday and climbs to over a two-week high.
• Aggressive Fed rate hike bets continue to boost the USD and lend support to the pair.
• The Fed-BoJ policy divergence favours bulls and supports prospects for further gains.

The USD/JPY pair edges higher on the first day of a new week and climbs to over a two-week high, though lacks follow-through buying. Spot prices, however, stick to modest intraday gains near mid-145.00s and remain well within the striking distance of a 24-year high touched in September.

The US dollar buying remains unabated on the first day of a new week, which, in turn, is seen as a key factor offering support to the USD/JPY pair. In fact, the USD Index, which measures the greenback's performance against a basket of currencies, climbs to a one-and-half-week high amid expectations for a more aggressive policy tightening by the Fed.

The markets are currently pricing in a greater chance of the fourth consecutive supersized 75 bps rate increase at the next FOMC meeting in November. The bets were reaffirmed by Friday's robust US monthly jobs report (NFP), which pointed to the resilient economy. This remains supportive of elevated US Treasury bond yields and underpins the USD.

The Bank of Japan, on the other hand, has been lagging behind other major central banks in the process of policy normalisation and remains committed to continuing with its monetary easing. The resultant Fed-BoJ policy divergence favours bullish traders and supports prospects for a further near-term appreciating move for the USD/JPY pair.

That said, intervention fears hold back traders from placing fresh bulls bets and capping gains for the major, at least for the time being. It is worth recalling that Japan's finance minister Shunichi Suzuki said last week that the government stands ready to intervene in FX markets to prevent deeper losses in JPY.

Market participants also seem reluctant to place aggressive bets and might prefer to move to the sidelines ahead of this week's key event/data risks. The minutes of the last FOMC meeting held on September 20-21 will be released on Wednesday, which will be followed by the latest US consumer inflation figures on Thursday.

Investors will look for clues about the Fed's future rate hike path, which, in turn, will influence the near-term USD price dynamics and provide a fresh directional impetus to the USD/JPY pair. In the meantime, spot prices seem more likely to prolong the range-bound price action amid thin liquidity on the back of a bank holiday in the US.

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